U.S. housing prices: Buy now or buy later?

Working out the right time to buy a house is always hard. Homes are horribly expensive. The slightest up or down tick in the market can cost — or save — huge sums.

In America, those mulling a purchase are hearing particularly confusing signals. Prices have soared for the past couple of years, suggesting that those who wait will suffer. But slowing prices, weak construction data and jitters about a possible interest-rate rise (among other worries) suggest that prices might drop, as they did five years ago. Perhaps scrambling onto the housing ladder now is unwise after all?

Home buyers have cause to be nervous: during the crisis of 2008 and 2009 prices fell by 60 percent in some places. Yet since then America has bounced back remarkably. Median property prices in the Northeast are well above previous highs, having risen by 51 percent between 2009 and 2013. Prices in the Midwest and South topped previous peaks in 2012. Only in the West are homes worth less now than in the bubbly mid-2000s.

Some don’t trust this rebound. Peter Wallison of the American Enterprise Institute, a conservative think tank, warns that a new bubble is forming. But there already are signs that the market is stalling. Data released by the National Association of Realtors (NAR) last week reveal a bloodless market. Existing home sales were down for the seventh time in eight months, and are 7.5 percent lower than in March 2013. New-home sales were even worse, down 14.5 percent between February and March. Price rises are slowing: data released on Tuesday showed annual rises of 6.9 percent, down from over 8 percent a year ago.

Yet despite these omens, there are still reasons for buyers to be brave. For a start, the steady flow of cheap “distressed” housing is drying up. Between 2008 and 2011 over a third of all sales were in this category: either foreclosed homes or those being sold at a loss, often by banks. That backlog is clearing, with only 11 percent of sales in 2014 expected to be distressed stock, according to Lawrence Yun, the NAR’s chief economist. In 2015 it could be as low as 6 percent.

And the pipeline of new houses is hardly gushing. During the financial crisis many small builders folded. The survivors are finding it hard to obtain loans to build more homes. This helps explain why supply has not responded to perky prices: the pace of ­building is still far below its pre-­crisis average across America.

Even if supply does improve, new homes will not be cheap. Construction costs are rising fast: by 15 percent in the past two years. Median prices of new and existing homes have diverged, with a new pad costing 38 percent more than a lived-in one.

The recent data also make an interest rate rise even less likely. Falling household debt and a rising number of cash-funded sales will ease concerns at the Federal Reserve. In addition, predictions of a future rise have already made buying tougher: 30-year mortgage rates were 4.34 percent in March, up from 3.57 percent a year ago.